Bullion ends lower

Prices drop with falling energy price and steady interest rate

Bullion metals ended lower today, Wednesday, 25 June, 2008. The decline in energy costs reduced demand for the precious metal as a hedge against inflation. Prices also fell after Federal Reserve kept interest rates steady and also voiced concerns regarding inflation. Silver prices also fell today.

Generally, a stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies. On the other hand, a lower dollar pushes up precious metal prices as their demand lessens as it becomes cheaper for traders holding other currencies.

Comex Gold for August delivery fell $9.4 (1%) to close at $882.3 ounce on the New York Mercantile Exchange. Last week, gold prices ended higher by $30.6 (3.5%). Last month, in May, it ended with a gain of higher by $22.5 (2.5%). On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped since then.

This year, gold prices have gained 6% till date against a 6.5% drop for the dollar against the euro. Before May, for April, prices closed lower by 6.3%. For first quarter prices gained 10.7%. In January, prices gained 11%, the highest monthly gain since April 2006. For February, it gained 6%. But in March, prices succumbed and fell by 5.5%.

On Wednesday, Comex silver futures for July delivery fell 13.2 cents (0.8%) to $16.607 an ounce. Last week, silver has gained 5%. Silver has gained 11.8% in 2008 till date.

Silver prices ended the month of May 2008 with a gain of 2.7%. For April, it closed lower by 5.5%. Silver had gained 16% in Q1. In January this year itself, prices climbed 14%. In February, it gained another 15%. For March, it ended lower by 13%. The metal had climbed 16% in FY 2007. The metal also has gained for seven straight years.

At the currency markets on Wednesday, the dollar was little changed against the euro before the Fed's statement. After that, the dollar index, which measures the U.S. unit against a basket of major currencies, was at 73.01, compared to 73.22.

The Federal Reserve today sharpened its focus on inflation, saying that the upside risks to inflation have increased. Fed held its target for short-term interest rates steady at 2%.

Since last September, Fed has axed interest rates seven times and brought it down to 2%. On the other hand, the ECB has kept rates unchanged at 4% since June, 2007. Gold gained 39% from 17 Sept as the Fed slashed rates from 5.25%.

In the crude market on Wednesday, crude oil fell more than $2 a barrel after record fuel prices cut consumption, causing U.S. inventories to rise for the first time in six weeks. Crude oil for August delivery declined $2.45 (1.8%) to settle at $134.55.

Gold had witnessed the greatest annual gain in twenty eight years by gaining $200/ounce (31%) in FY 2007 as lower interest rates had sent the dollar tumbling, and crude-oil prices rose to a record. In 2006, silver had jumped 46% while gold gained 23%.

At the MCX, gold prices for August delivery closed lower by Rs 121 (0.98%) at Rs 12,224 per 10 grams. Prices rose to a high of Rs 12,364 per 10 grams and fell to a low of Rs 12,150 per 10 grams during the day’s trading.

At the MCX, silver prices for July delivery closed Rs 181 (0.8%) lower at Rs 23,387/Kg. Prices opened at Rs 23,560/kg and fell to a low of Rs 23,316/Kg during the day’s trading.